JANUARY 2015 ENERGY PIPELINE 1
WAGNER EQUIPMENT CO.
INNOVATIVE SOLUTIONS FOR YOUR OPERATION
We are a complete source for any size of equipment … all designed for top performance and dependability. As a total solutions provider, we offer more than 300 pieces of rugged and reliable equipment for industries ranging from heavy and general construction to mining and agriculture to petroleum and landscaping. Equipment Solutions Whatever your line of work, Wagner Equipment Co. has the equipment you need to meet the challenge and get the job done right, no matter how large or small that job may be. Other products sold and rented by Wagner include air compressors, trailers, machine work tools and implements. Wagner Equipment Co. has 13 heavy equipment and 21 Wagner Rents - The Cat Rental Store locations throughout our Colorado, New Mexico and Far West Texas territories. Through our “Any Part Any Store” program we can get the part you need, where you need it, fast. We have 98% or better parts availability within 24 hours. Emergency After-Hours parts ordering is available via phone, 24 hours a day every day. You can also order parts online using PartStore from your computer at your convenience. Our extensive service network of Resident, Field, and Shop Technicians are ready to help keep your equipment up and running. Contact us today for all the innovative solutions we have to offer your operation. Call
www.WagnerRents.com 2 ENERGY PIPELINE JANUARY 2015
1-877-654-1237 – We look forward to helping you.
www.WagnerEquipment.com
ANADARKO PETROLEUM CORPORATION
ANADARKO IS... Among the world’s largest independent oil and natural gas exploration and production companies – providing for today, innovating for tomorrow.
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Features
38
42
PAWNEE NATIONAL GRASSLAND & DRILLING
POWER CHANGE
Lukewarm reception to “no surface occupancy” stipulation.
Power company hopes to plug more rigs into highline power. By Sharon Dunn
By John Haughey
16
BLUBOX POWER COMPANY
28
Clean Tech challenge can help get company off the assembly line.
18
Texas frac water heating company sets up shop in Fort Lupton.
By Sharon Dunn
48
By Sharon Dunn
22
FALLING CRUDE
Dropping crude prices have global implications. By Allison Dyer Bluemel
4 ENERGY PIPELINE JANUARY 2015
LABOR EFFECT
Oil, gas boom prompts labor shortage in northern Colorado.
By David Persons
BREAKING GROUND
ON THE COVER Photo illustration by Darin Bliss
BREAKING RECORDS
Colorado’s oil production flips between fields. By Tracy Hume
66
MAKING HOLE
A look back at petroleum’s past. By Bruce Wells
Departments 8
Support Company Profile
10
Field Worker Profile
12
Executive Profile
58
News Briefs
KB Oil Tools, LLC
Meet Darby Davis, Green Earth Environmental Inc.
Meet Rich Frommer, Great Western Oil & Gas Company
JANUARY 2015 ENERGY PIPELINE 5
Our SERVICES shine bright with
SERVICE EXCELLENCE
PUBLISHER Bart Smith EDITOR Randy Bangert GENERAL MANAGER Bryce Jacobson
Happy HOLIDAYS! Need an electrical distributor that’ll spread good cheer to your business all year long? We’ve got the best products and service. It’s what we, as employee-owners, call the perfect package. » Inventory management » Technical support and training » Job site project management trailer » Lighting and energy management
Our holiday hours are: » » » »
December 24 open until 12 p.m. December 25 closed December 31 open until 12 p.m. January 1 closed
CREATIVE MANAGER Alan Karnitz BUSINESS MANAGER Mike Campbell MANAGING EDITOR Sharon Dunn CONTRIBUTING WRITERS Allison Dyer Bluemel John Haughey Tracy Hume David Persons Bruce Wells
ADVERTISING DIRECTORS Bruce Dennis Gary Loftus Sabrina Poppe ACCOUNT MANAGERS Paul Dovenbarger Cristin Peratt Mary Roberts Kristy Zado ACCOUNT/PROJECT MANAGER T.J. Burr CREATIVE TEAM SUPERVISOR Afton Pospíšilová ART DIRECTION & DESIGN Darin Bliss
ENERGY PIPELINE MAGAZINE 501 8th Ave. P.O. Box 1690 Greeley, CO 80632 For all editorial, advertising, subscription and circulation inquiries, call (970) 352-0211. Send editorial-related comments and story ideas to: editor@energypipeline.com For advertising inquiries, contact: bjacobson@energypipeline.com January 2015, Volume 2, Issue 5. Published by Greeley Publishing Co., publisher of The Greeley Tribune, Windsor Now, the Fence Post, and Tri-State Livestock News.
30-250 (2014-11)
6 ENERGY PIPELINE JANUARY 2015
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SUPPORT COMPANY PROFILE
KB Oil Tools, LLC
CORPORATE HEADQUARTERS 207 1st St. Kersey, CO 970.356.0354
NUMBER OF EMPLOYEES 8
SERVICES OFFERED We supply sub-surface tools, pliers, bridge, and frac plugs, etc.
HOW LONG HAS YOUR BUSINESS BEEN OPERATING IN WELD COUNTY? Two years.
WHY SHOULD CUSTOMERS DO BUSINESS WITH YOUR COMPANY? Experience and equipment.
HOW LONG DO YOU ANTICIPATE BEING IN BUSINESS IN NORTHEAST COLORADO?
WHAT KIND OF SKILLS, EXPERIENCE OR EDUCATION DO YOU LOOK FOR IN EMPLOYEES?
As long as there is an oil field.
We look for someone who is good in math, has common sense and has a business degree.
IS YOUR COMPANY IN A GROWTH MODE? Yes.
KB OIL TOOLS, LLC Interested applicants can turn in an application and a resume 8 ENERGY PIPELINE JANUARY 2015
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JANUARY 2015 ENERGY PIPELINE 9
CL E
Power Distribution Rentals | Generator Rentals | Well Pad Automation Wiring & Programming | Electrical Solutions
FIELD WORKER PROFILE
Darby Davis
GREEN EARTH ENVIRONMENTAL INC. BY STAFF REPORTS
HOMETOWN Lakewood
WHERE DO YOU LIVE? Johnstown
HOW LONG HAVE YOU BEEN WORKING IN NORTHEASTERN COLORADO? I have been working in northeastern Colorado for about nine years; I moved to this area to be closer to my family.
HOW DID YOU GET INTO THE INDUSTRY? I got into this industry by chance. I was fresh out of high school, and one of my friends at the time was working for a small reclamation company. He helped me get hired with them, they took a chance on me as I was young and had zero experience with tractors, or any equipment for 10 ENERGY PIPELINE JANUARY 2015
that matter. They taught me a lot about the industry and gave me a good base to get to where I am today.
WHAT IS YOUR JOB TITLE AND DUTIES?
location in a year or so later and you can’t even tell where the disturbance was at.
WHAT IS THE BEST PART OF YOUR JOB?
standards if the wind is howling.
WHAT DO YOU DO IN YOUR SPARE TIME? I currently spend my spare time building a ‘56 Ford F100 street rod. It has been a dream of mine to build one since I was young. I finally bought one a year ago and have been slowly doing what I can. It’s a challenge and I love learning new things as I go along.
My job title is Reclamation Project Manager. I’m in charge of our reclamation department. I manage and oversee the crews and all of the equipment that goes along with it. We run four to five reclamation crews daily, which consists of eight to 10 employees and their equipment.
The best part of my job is the good group of people that I get to be around all day. Not a lot of people can say that. I truly can, from employees that work here to people we do business with.
WHAT IS THE MOST INTERESTING THING ABOUT YOUR JOB?
WHAT IS THE HARDEST PART ABOUT YOUR JOB?
WHAT ARE YOUR FUTURE AMBITIONS IN THE INDUSTRY?
The hardest part of my job is dealing with good old Mother Nature. You can have a rock solid plan for a day but she tends to have a fairly big impact on us, then trying to adjust and recover for a productive day. Wind is our No. 1 problem; we cannot do our job to our
My future ambitions in this industry are to do my part on making sure that people see the positive impact that oil and gas brings to this area. If people would stop assuming the bad stuff and actually knew what everything was about,
The most interesting thing about my job is seeing the effect that after everyone is gone and we are done with our part, we can drive by that
it would definitely help things out. I think it is funny that every time someone sees us shooting hydro mulch or FGM for the first time the first question out of their mouth is, “Why are you shooting that hazardous green stuff on the ground?” If they only knew it is basically wood with all natural products in it.
WHAT DOES THE WATTENBERG FIELD AND THE DJ BASIN MEAN TO YOU? It means everything to me. I love that all this work is right here in our backyards. I have been on the other side of things where you have to travel out of town every week to go to work. So it’s important to me as well as our guys to have a good reputation and do all of our jobs to exceed our standards as well as the industries.
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EXECUTIVE PROFILE
GREAT WESTERN OIL & GAS COMPANY
Rich Frommer BY DAVID PERSONS • FOR ENERGY PIPELINE sometimes luck can play a big part in
our lives. Such was the case for Rich Frommer as the young New Yorker from Long Island sat in a geology class on the first day of freshman classes at the State University of New York at Oneonta in the early 1970s. Frommer, who today is the president and CEO of Great Western Oil & Gas Company, had planned on being a doctor. He was, up to that moment in fact, a pre-med major. But, something happened in that geology class that put his life on a totally different path. “That class really hooked me,” Frommer said, recalling that life-altering day. “After that first lecture, I changed my major. It just clicked. Geology just resonated with me.” It didn’t hurt anything that SUNY-Oneonta had the great fortune to attract a large number of geologists at this time who had just left the slumping oil and gas industry. “They were just so skilled and so impressive,” Frommer said. While he focused his attention on geology, Frommer also had the opportunity to hone his management skills that would prove beneficial to his success later in life. “I actually had two jobs in college that helped with those skills,” Frommer said. “I was a manager at a ski resort while I was in college. And, the college owned some school buses - coach buses - that were used to move sports teams around New England. I managed the two buses and drove one of them.” 12 ENERGY PIPELINE JANUARY 2015
When Frommer graduated with his geology degree in 1975, he decided to move to Colorado and “be a ski bum.” But, there was a small flaw in his plan. “I made the mistake of going out in the summer,” Frommer said with a laugh. “That meant I had to get a job.” So, he got a job as a geologist with Colorado Interstate Gas and planned to be a part-time ski instructor in the winter. As it worked out, his geology job became a big deal for him from the outset. “I remember the owner of the company had just negotiated a deal to explore all the land Burlington Northern (Railroad) had in its right-of-way,” Frommer said. “That was about two and a half million acres. “As a young geologist, he said: ‘Here’s two and a half million acres of land. Go find some oil.’ “I looked around a lot and, as it turned out, my first site was a discovery (in North Dakota).” Frommer went on to explore sites throughout the Rocky Mountain region from Canada to New Mexico and Texas. “I knew this was a great place for my career,” Frommer said. “That was it.” Then came the recession in the 1980s. The good times came to a screeching halt. “I had to do a lot of things to survive,” Frommer said. “I had a family and a mortgage. I put a snow plow on a truck and plowed streets. I also bought some car washes. And, I worked as a geology consultant.” Frommer, who had always had a strong work ethic, found these times helped cement in him that he could survive anything.
When times improved, Frommer began to get good positions with oil and gas companies such as Samson Resources and HS Resources. Eventually, he was hired to help build and expand Great Western Oil and Gas Company as its president and CEO. Today, Great Western has roughly $1 billion in assets in the Rocky Mountain and mid-continent regions.
QA &
with Rich Frommer
Energy Pipeline recently discussed with Frommer the challenges and issues he currently faces as he leads Great Western. ENERGY PIPELINE: In your company bio, it says that your role is to “cultivate and expand” the company. What exactly does that mean? My role is to cultivate a team of high performance oil and gas professionals and build a bench of expertise to execute on our plans. It also means to expand personnel and our acreage positions so we have future development opportunities.
ABOUT
Rich Frommer AGE 62
SPOUSE Mel Frommer
CHILDREN Lauren (28) Chelsea (25)
CITY YOU GREW UP IN Garden City, N.Y. (Long Island)
HIGH SCHOOL YOU ATTENDED New Hyde Park Memorial High School
COLLEGE ATTENDED/ DEGREES BS in Geology from New York State University in 1975. Completed executive programs at the Southern Methodist University Cox School of Business.
CITY YOU LIVE IN NOW Littleton
WHAT DO YOU DO IN YOUR SPARE TIME? Avid skier in winter, golfer, bike rider.
LAST GOOD BOOK YOU READ
SOMETHING ABOUT YOU THAT FRIENDS AND CO-WORKERS DON’T KNOW I’m not that good of a golfer.
YEARS WITH GREAT WESTERN OIL & GAS COMPANY 2 years
PROFESSIONAL BACKGROUND Rich has an extensive history in the oil and gas industry and has worked within organizations such as Samson Resources Company and HS Resources. At Samson, he held the position of senior vice president in the Rocky Mountain division, where he built and developed a team and organization from a four-man, start-up with an initial $200 million acquisition into a $4 billion asset that was part of the largest private equity oil and gas buyout by KKR. He was responsible for the planning and implementation of annual capital budgets of up to $450 million structured to provide maximum rate of return. Rich did this while managing an office staff of 125 people and four field offices of approximately 65 personnel.
“Heroic Leadership” by Chris Lowney
JANUARY 2015 ENERGY PIPELINE 13
QA &
with Rich Frommer continued
EP: You were hired about a year and a half ago by Great Western after Samson Resources was acquired by KKR. What was your initial challenge when you came on board at Great Western? RW: The initial challenge was to build a team, reassess the existing assets, to convert from a vertical driller to a horizontal driller, and to position the company for growth and value creation. We have since doubled the number of employees from my start date. EP: What is currently your biggest challenge? RW: Managing a rapidly changing environment, dealing with new regulations, and increased competition in a volatile commodity price environment. EP: Great Western is a relatively new oil and gas company, forming in 2005. Having said that, the company is on a tremendous growth curve. How hard is that going to be for you to maintain that growth amid such strong competition? RW: It is a daily challenge for the reason mentioned in your last question; however, it is an important
task to add to Colorado’s economic growth and our nation’s energy independence. EP: As posted on your website, part of your company’s strategy involves entering other basins with upside and growth potential. Do you have any specific basins that you are studying at the moment and why? RW: Ninety-five percent of our efforts continue to be in Colorado, but we do look at other opportunities throughout the Western United States on a continual basis. It is just difficult to beat Colorado right now. EP: Another part of your company’s strategy states that the company plans to follow strong economics even in volatile price environments. Are you seeing such an environment now as the price of both domestic and foreign oil drops? If so, how do you plan to address that? RW: First we try to be the best operator. That means drilling in the fewest number of days and performing the most efficient completions. This translates to driving our costs down. We also use hedges to protect our downside and have a solid hedge book in place.
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EP: It’s obvious that the DJ Basin is your main focus at the moment. Will that continue for the foreseeable future and why? RW: Yes. It is still one of the highest rate of return oil and gas plays in the lower 48 states. EP: Great Western has had a very special relationship with the town of Windsor, beginning about 10 years ago with the creation of the Great Western Industrial Park. That relationship has now grown to embrace the oil and gas industry. How key is that relationship for the company? RW: We realize what special places towns like Windsor are in northern Colorado. To have a role in contributing to its growth and development is something we take great pride in. Like any serious relationship, there are great rewards and occasional stresses so keeping the communications and transparency going are the keys to mutual success. EP: Great Western has been a benevolent company, often giving back to communities. Most recently, it gave $20,000 to the Windsor School District for the purchase of 60 Android tablets for Tozer Primary
School. Is this part of the company’s mission - to give back? RW: We all have an obligation to contribute, especially for a company like Great Western that has such a close and involved relationship with local communities. The contribution represents one of our major priorities, which is promoting not just education, but fluency in technology and science. EP: Do you believe that Gov. Hickenlooper’s recentlyappointed oil and gas task force will come back with helpful recommendations? RW: I thank the governor for brokering a deal that allowed such a significant industry to continue to contribute to the economic growth of the state. The task force has a diverse representation in its makeup, which is, in many ways, is how it should be. I can’t predict what kind of results will come out of the task force, but the role it has performed already by engaging the citizens of Colorado and collecting perspectives from around the state has been valuable. We should remember we are all consumers of these commodities and we are fortunate as a state to have them here in such abundance to enhance our lives.
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Northern Electric, iNC. - E-House Facility - 10100 119th Street, Longmont, CO 80504 JANUARY 2015 ENERGY PIPELINE 15 Northern Electric, Inc. - Corporate Headquarters 1275 West 124th Avenue, Westminster, CO 80234 877-265-0794 www.northernelec.com
BLUBOX POWER COMPANY CleanTech challenge can help get company off the assembly line BY DAVID PERSONS • FOR ENERGY PIPELINE
blubox power company got an unexpected invitation last fall that could be the jump-start the Johnstown firm needs to get its innovative energy conversion product off the assembly line and into the field. BluBox Power creates modular generation units that can be placed at stranded oil/natural gas wells, operate off the unprocessed wellhead gas, and turn that otherwise wasted resource into electricity. The electricity is then sold to area electric co-ops who place it on the state’s electric grid. BluBox officials admit that the idea is based on a not-so-new technology - using natural gas to generate electricity. Many coalfired plants already use natural gas generators as a backup when coal-fired generators are taken down for maintenance. But, the application of using that technology and applying it at the wellhead - especially stranded sites - is new. Because the price and demand for natural gas are both relatively low now, many oil and gas companies simply flare or vent off their natural gas which comes up with the oil. BluBox officials say that using their generation units can avoid flaring and make money at the same time. “It was a total waste,” said BluBox Power Executive Vice President Tom Lewis, of the industry’s trend to flare natural gas. “Everybody wins this way. It cleans up the environment by not burning up natural gas. It also replaces dirty diesel generators that are being used to generate electricity at a lot of well sites. “It’s a win-win for everyone.” The problem, however, has been finding the owner of a stranded well site who would be willing to test the BluBox generation units. Then came the Oil & Gas Cleantech Challenge. The event was held in Denver on Oct. 2, 2014. It was sponsored by the Colorado Cleantech Industries Association (CCIA) through partnerships 16 ENERGY PIPELINE JANUARY 2015
BLUBOX OFFICIALSSAY THAT USING THEIR GENERATION UNITS CAN AVOID FLARING AND MAKE MONEY AT THE SAME TIME with Noble Energy, Encana and ConocoPhillips. The challenge was developed to assist the oil and natural gas industry in identifying new technologies to make energy development safer, more environmentally responsible and cleaner. BluBox Power was selected along with 11 other companies to make a presentation. The others included: Agribotix, Albert Plus LLC, Dynamo Micropower, Gas Plume Imaging LLC, HY-BON Engineering, Linear Motions Technologies LP, OptiEnz Sensors, Resirkulere USA, Solar Multiple, Unico, and WellDog. The invitation was exactly what BluBox officials needed to get their product in front of oil companies. “The three major oil companies on the panel had heard about us and made sure we were one of the presenters,” Lewis said. “We were really honored and excited.” Following a 10-minute power point presentation and another 10 minutes answering questions, it became obvious that BluBox’s generation units were tweaking interest. Lewis said during a reception later that day, people began approaching them for more information. That has led to talks with some oil and gas companies in Colorado. But, Lewis said, “we’re still trying to do the deal.”
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BluBox Power provides modular generation units that can be placed at stranded oil/natural gas wells, operate off the unprocessed wellhead gas, and turn that gas into electricity. These natural gas powered generators burn cleanly with ultra low emissions ratings that exceed state and federal emissions standards. BluBox Power provides a complete system; engineering, equipment, installation and maintenance. Units can be set up fairly quickly, are computer monitored remotely and are powered by Caterpillar. The generated electricity is then uploaded directly into reliable primary distribution lines and is sold under long-term contracts to local rural electric cooperatives. The company, which changed its name from BluBox Energy, Inc. to BluBox Power Company on Feb. 19, 2014, has offices in Johnstown and Las Vegas.
He said that deal, when it’s completed, will include a 60- to 90-day trial. Although there are approximately 3,000 shut-in wells in Weld County that could benefit from BluBox’s technology, Lewis said his firm just needs an opportunity to get going. “We just need to prove that it will work in this application,” Lewis said. To clear the way, BluBox has already signed with two Weld County energy companies - United Power of Brighton and Poudre Valley Rural Electric Authority. United Power, like other electricity cooperatives in the state, gets its power from Tri-State Generation and Transmission. Contracts with TriState allow the cooperatives to get 5 percent of the power from other sources, such as wind and solar. United Power has agreed to fill 2 percent of its electric power needs from BluBox. The co-op signed a five-year agreement with BluBox to buy power at lower rates than their wholesale supplier. The agreement is only for 2 percent because United Power has a 2-megawatt solar farm and a 3-megawatt Landfill Gas to Energy Project, in which methane is converted to electricity from the Erie Landfill. Poudre Valley REA, which powers many homes and business in rural Weld and Larimer counties, signed a five-year agreement for 3 megawatts with BluBox. A BluBox generation unit, which uses a Caterpillar engine to drive the generator, can provide enough power to light up to 200 homes.
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17
A group of officials from the city of Fort Lupton, area economic development agencies and McAda Fluids Heating Services officially break ground on the site of McAda’s new Fort Lupton facility in late November, set to open in the spring.
Photo by Sharon Dunn • sdunn@energypipeline.com
BREAKING GROUND
Texas frac water heating company sets up shop in Fort Lupton BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
one more addition to fort lupton
may have officially done it. The small town about 40 minutes south of Greeley has officially become an oil field town with the groundbreaking of McAda Fluids Heating Services in late November. The company’s founder, James McAda, officially threw the dirt onto the 10-acre property at the corner of U.S. 85 and Weld County Road 8, with a crowd of town and economic development officials in tow. His staff will use the new, permanent, facility as a Rockies hub for the company’s services, which include heating fluids for all stages of drilling, an important step to ensure equipment doesn’t crack and fluids can flow freely. 18 ENERGY PIPELINE JANUARY 2015
For the last two years, the company has been sharing space with Select Energy Services in Brighton, McAda said. From there, the company has operated 15 mobile heating units. The new facility will be roughly 50,000 square feet, McAda said. The site will include a truck yard, a maintenance shop, warehouse and an office. “We’re looking at about $4.5 million for the facility, about $5 million with the property,” McAda said of his investment. “Well probably spend another million in Phase II not counting the equipment that’s there. Equipment will be another $10 million.” McAda originates out of Bay City, Texas. The company, which has three facilities
in Texas, dispatches trucks throughout oil patches nationwide. “It’s great that Weld County is very busy right now, but we don’t have to be right in the middle of where the work is going on,” McAda explained in an interview. “Our equipment will go from that facility to Wyoming, Kansas, Colorado and Utah.” McAda expects to open in the spring, with an additional 20 or so employees to add to its current count of 15-18. McAda said this is the first expansion of his business in 10 years. The family operation has been in business since 1989, starting out with basic equipment rental. “Back about 10 years ago or so, 2004, we were getting requests to do frac water heating, which at that time was done with
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JANUARY 2015 ENERGY PIPELINE 19
LEFT : McAda Fluids Heating Services founder and owner James McAda addresses a small crowd gathered at the groundbreaking of the site of the company’s first location outside of Texas. McAda hopes to use the new Fort Lupton facility as a regional hub for company operations. RIGHT: Workers build the site of McAda Fluids Heating Services in Fort Lupton in late November. The building represents a $5 million commitment by owner James McAda.
THIS IS THE COMPANY’S SECOND YEAR IN COLORADO, AND MCADA SAID HE IS SPENDING SOME MONEY TO MAKE THEIR COLORADO HUB A PERMANENT FACILITY standard, old fashioned hot oil trucks,” McAda explained, noting his company was one of the first to buy frac water heaters. “We’ve been on the leading edge of those since they were first built,” McAda said. Frac water heating is necessary to keep pipe downhole from failing, McAda explained. “When you inject cold water down a casing, the well is under pressure, if you lower the temperatures ... the metal casing will contract, and it could possibly cut in two, which is a casing failure,” McAda explained. The company operates more than 1.8 million British thermal units of heating capacity for frac tanks, water pits and “heating-on-the-fly” services. McAda said the company’s “claim to fame” is “heating on the fly,” which is a patented process. “Because we have these larger heaters, 20 ENERGY PIPELINE JANUARY 2015
you can heat water at the rate it’s being pumped form storage site to the frac site,” McAda said. “We can heat on demand, and not having to keep the water at a higher temperature, so it cools down. It’s a whole lot more efficient.” A lot of times water is heated prior to being used for fracking; if the fracking process gets delayed for some reason, that water would cool down and have to be reheated. “It takes lot of everything to heat water, so the more efficient you can be by not heating water until it’s being used,” the better, McAda said. This is the company’s second year in Colorado, and McAda said he is spending some money to make their Colorado hub a permanent facility. “Being there just makes it easier for us with the type of work we do, it doesn’t matter where we come from,” McAda said. “It’s always nice not to come far, not like
the equipment goes back to yard every day. It’s out there on the job the whole winter season and stays in the field. We’ve got stuff running now in New Mexico, Ohio, Michigan and Pennsylvania, not to mention Colorado and Wyoming.” For now, he said, he can’t foresee any further additions to the company. “We cover a large area, and we have a lot of specialized equipment that goes all over the place,” McAda said. “We’re not going to make any fast moves. This business cycles up and down and we’re positioned to cycle with it, whether it’s up or down.” For Fort Lupton Mayor Tommy Holton, McAda is just a natural fit for a town that has been increasingly known for accommodating oil field businesses. “That’s the horse that’s running,” Holton said of the energy industry businesses coming to town. “Hopefully, we can diversify but we’ll take advantage of it.”
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1. You can make a difference...donating to charity is the perfect opportunity to make a difference in Weld County. You can help other people...there are always people who need help. Many of these folks have problems that are beyond their ability to prevent or change. 2. We need your help to continue helping your families, friends and neighbors. Regardless of what you are able to give, your investment makes long lasting changes throughout the community. Together we can get results that no one can acheive alone.
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JANUARY 2015 ENERGY PIPELINE 21
DROPPING CRUDE PRICES HAVE GLOBAL IMPLICATIONS BY ALLISON DYER BLUEMEL • FOR ENERGY PIPELINE
the price and value of oil depreciates, Essner said stock prices go while cheaper gas and oil prices can offer short-term benefits down accordingly, which can affect the net worth of the market’s for shoppers and travelers in 2015, analysts say there remains investors and their confidence in spending. much uncertainty about the long-term outlook for the price of oil Lower crude oil prices also have impacts on U.S. trade relations and its impact on U.S. and world economies. and the economies of other oil-production nations, Essner said. The U.S. Energy Information Administration expects regular “When you look more broadly at U.S. companies and their ability gasoline prices to average $2.94 per gallon in 2015, down from to send (crude exports) overseas, it has a negative impact,” she said. a projected average of $3.39 per gallon last year and $3.51 per gallon in 2013, after crude prices tumbled 30 percent in five While oil and gas alternatives such as wind and solar energy months from a summer have gained traction in peak of $100 a barrel. recent years, she said that The lower crude cleaner energy will not oil price also mean have a long-term effect on cheaper jet fuel, the demand for oil. making traveling more Though these affordable for some alternatives offer during the highermore environmentally traffic holiday season, friendly energy sources, Colorado Petroleum movement toward Association President renewables will not Stan Dempsey said. permanently lower the TAMAR ESSNER, NASDAQ Energy Analyst “It’s like a big tax cut demand for oil.
“The lower prices are beneficial for certain industries and lower- and middle-income families that live more on a hand-to-mouth basis.”
for many,” he said. Despite the popular belief that cheaper prices means higher consumer spending, the overall correlation between the two, particularly in regard to gasoline prices, is inconsistent across income levels, said NASDAQ Energy Analyst Tamar Essner. “The lower prices are beneficial for certain industries and lowerand middle-income families that live more on a hand-to-mouth basis,” she said. “However, higher ticket purchases in luxury or higher-end industries will not see much of a difference.” The accompanying drop in stock prices can result in lower spending confidence for higher earners as well, Essner said. When 22 ENERGY PIPELINE JANUARY 2015
“The improvement made to energy through automobiles is a permanent demand destruction,” Essner said. Organization of the Petroleum Exporting Countries and other oil producers have felt pressure to stay relevant in industries that require less and less oil as automobiles and production become more efficient, she said. “Technology has made things energy efficient,” Essner said. “The amount of the money consumers have spent on energy has continued to go down so it’s less of a chunk of what they spend their money on.”
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Essner said the change in crude oil and gasoline prices and demand affect three prisms: North American production and the political pressures from recent elections, the OPEC impact on Middle Eastern stability, and the prominence of Asia and Russia in the global market. “There is an extremely garish abundance of supply,” she said. “The biggest supplies are not looking at cutting back on the supply or spending.” The main question in relation to North American oil and gas operations is whether Canada, Mexico and the U.S. can take over the market held by OPEC, Essner said. The U.S. and Canada make up approximately 75 percent of the non-OPEC worldwide oil and gas industry, she said. Since the rise of shale production in 2008, Essner said North American oil production, particularly in the U.S., has pressured OPEC to lower prices to compete with the larger supply. Additionally, with more domestic oil production, the U.S. has decreased the amount of crude oil it imports from other countries year over year. In August 2006, the U.S. had net imports of over 13 million barrels per day of crude oil and products compared to the second half of 2014, when net imports came out at 5 million barrels a day, Essner said. “The U.S. remains the largest gross crude importer in the world, but net crude imports are now only slightly above China’s,” she said. However, while shale operations have pushed the U.S. closer to energy independence, Essner said the high cost of those operations make competing with lower overseas prices per barrel difficult. When OPEC met Nov. 27, 2014, it decided against a production cut to lower prices in the short run to “force the
hand of the North American industry to cut back on shale investment,” she said. “One of the reasons that North American production has been so successful over the past five years is because of the high and stable prices that OPEC has helped to maintain which enabled shale to be economic even when the drilling and development costs were high,” Essner said. Gross withdrawals from shale gas wells in the U.S. increased 560 percent between 2007 and 2013 from 5 billion cubic feet per day to 33 billion; 2013 production levels represented 40 percent of the total natural gas production and surpassed non-shale production, according to the EIA. “New technology has enabled producers to shift production to resources that are now easier to reach and have lower drilling costs. These trends have been reflected in a lower market price of natural gas,” according to an EIA report. OPEC’s recent thinking appears to be that forcing cuts in shale production will rebalance the long-term market by lowering future spending in the industry, she said. However, Essner said predicting the economics of U.S. shale offers challenges due to the industry’s widely varying specific acreage for operations and the when the land used was purchased. “But generally speaking, the costs have been trending downward, making more shale economic at lower price points than before,” she said. Essner said she does not think that OPEC’s actions will mean the end of the U.S. shale oil industry. “That said, smaller and more leveraged players may not survive and newer players ... will also suffer in this environment,” she said. The industry may experience some consolidation in space and service contracts negotiated lower to continue to drive down costs, Essner said.
ADDITIONALLY, WITH MORE DOMESTIC OIL PRODUCTION, THE U.S. HAS DECREASED THE AMOUNT OF CRUDE OIL IT IMPORTS FROM OTHER COUNTRIES YEAR OVER YEAR
24 ENERGY PIPELINE JANUARY 2015
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JANUARY 2015 ENERGY PIPELINE 25
Despite some smaller oil and gas companies taking a dip in stock price, which it had already begun recovering from during the first week of December, OPEC’s decision may not affect U.S. operations as much as they had hoped. “Production numbers may not change a whole lot because operators have probably already lined up new production for the next several months,” Dempsey said. “Companies may adjust their capital spending if prices deteriorate further.” While OPEC countries can reduce production relatively quickly, if U.S. producers were to reduce production they would require between six and 12 months to ramp down production, Essner said. “At that point, North America would see a slowdown in the rate of production growth, but output would still be growing next year,” she said. Dempsey said that any concrete prediction, however, would be premature. Companies will evaluate their worldwide operations and invest in areas that will make them the best return.
in production OPEC’s November meeting to drive up the price per barrel by decreasing the global supply. “By failing to reach an agreement on a quota, OPEC has effectively abdicated its role as a cartel - they no longer set prices,” she said. However, OPEC still holds some relevancy globally, particularly in Asian markets were Saudi Arabia has defended market share, said Vance Scott, partner and leader for A.T. Kearney’s Americas Energy Practice. A.T. Kearney operates as a global management and strategy consulting firm. “Their production is very low on the cost curve so fundamental economics give them the option to always preferentially place oil into consuming markets,” he said. Saudi Arabia’s defense of its Asian markets stemmed from the emergence of mid- and light-grade crude oil from Africa moving into to meet the demand at a discounted rate relative to the Middle East producers.
LOOKING FORWARD INTO 2015, ESSNER SAID THAT, BARRING ANY MAJOR CHANGES FROM OPEC OR IN GLOBAL DEMAND FOR OIL, THE PRICE BER BARREL FOR CRUDE OIL WILL LIKELY STAY BELOW $90 Even if OPEC’s decision resulted in a large-scale decrease in shale production, the resilience of longer-term projects such as deep-water operations in Brazil, offshore Gulf of Mexico and in the Canadian oil-sands means that non-OPEC production would continue to expand, Essner said. OPEC’s decision not to cut production from 30 million barrels per day may put long-term pressure on its competitors; the decision may have internal effects as well. “The forces that are bringing OPEC down are both internal and external,” Essner said. OPEC’s internal struggles between large and small members have made the organization more divided than ever, she said. As one of the largest oil economies in the region, Saudi Arabia has historically controlled the direction of OPEC as one of its largest suppliers. “Richer countries in the Persian Gulf such as Kuwait and the United Arab Emirates are similarly aligned with Saudi Arabia because they have large financial reserves and would prefer to stomach the pain of lower oil prices to avoid losing customers,” Essner said. “They are still making money, just not as much.” While the wealthier countries can wait out low oil prices, poorer countries that have a strong reliance on profits from oil exports require triple-digit crude oil prices to balance social budgets and maintain stability, she said. Due to this, the more oil-dependent members pushed for cuts 26 ENERGY PIPELINE JANUARY 2015
Originally, African crude sought markets in the Texas Gulf Coast but was displaced by U.S. oil, he said. In response to the new competition in Asia, OPEC players decided to offer more oil for a lower price to produce higher revenue further down the road. “They think longer-term and will defend their market share position in the near-term knowing that African crude cannot compete (at a lower price),” Scott said. However, OPEC faces an obstacle in demand as China, the world’s second largest consumer of crude oil behind the U.S., transitions from a production economy to a service economy, Essner said. “It’s a natural part of the cycle of economics,” she said. This follows the shift in growth rate of U.S., which stabilized since making the transition to a predominately service-based economy. In 2013 and 2014, the rate at which China consumes more oil year over year slowed to under 3 percent, down from 13 percent or 15 percent 10 years earlier. “It’s not that demand is going down, the growth is still going up, but the pace at which it is going up is declining,” Essner said. Due to this shift, she said anything above the low single digits in the future will not realistically appear. “Lower oil prices will drive economic growth in non-OPEC nations,” Scott said. Based on China’s 2013 oil consumption, for every $1 drop
“Lower oil prices will drive economic growth in non-OPEC nations.”
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in the price of oil the country will save $2.1 billion annually. If the recent fall in prices is sustained, the country’s import bill will fall by $60 billion or 3 percent of their annual expense, he said. “Most of its exports are manufactured goods whose prices have not fallen,” Scott said. “Unless weak demand changes that, its foreign currency will go further and living standard should rise.” Countries like India may follow in China’s footsteps in the future, but their oil demands remain robust, Essner said. Russia, whose economy has already been strained with economic sanctions in 2014, will face a similar stress experienced by poorer Middle Eastern countries that rely heavily on profits from oil, she said. Looking forward into 2015, Essner said that, barring any major changes from OPEC or in global demand for oil, the price per barrel for crude oil will likely stay below $90. However, without OPEC’s role as a steadying force, the energy market’s stock may trade in a more volatile, unpredictable fashion, she said. Although Scott predicts the economic cycle to eventually pull crude oil prices back up, he does not expect the public to feel the fluctuation as heavily through gas prices, he said. “The local populations in many nations that export oil do not feel the impacts of varying crude pricing in gasoline and diesel costs because governments subsidize the pricing,” Scott said. In the near future, however, Essner does not anticipate a major upset in prices of crude oil or gasoline, she said. “Given broader slowdown in the world economy and the inelastic nature of oil demand, we are not likely to see an (increase) in demand for oil sufficient to raise prices into a new range,” she said. Additionally, changes to the U.S. political environment ushered in by a Republican congressional majority, which may liberalize crude exports, pushing the trade balance of U.S. oil beyond projections, she said. The oil trade balance is the difference between how much money is spent importing crude oil from outside the U.S. and how much is made exporting U.S. oil. In 2011, the U.S. had a deficit trade balance of $354 million, which is expected to break even in less than five years and may produce a surplus in the next decade if exports are liberalized, she said. This decline in U.S. current account deficit would help ease the necessity for foreign funding and help to strength the U.S. dollar. “All this suggests a robust supply picture for the near-term,” Essner said. “The critical thing to watch in the U.S. will be the rate of change - how much growth slows, which is not likely to be significant until the second half of 2015 or even in 2016.”
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With the holiday season approaching, businesses across Greeley were searching for new employees but many are having trouble filling their ranks.
LABOR EFFECT Oil, gas boom prompts labor shortage in northern Colorado BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
there’s all sorts of speculation about Greeley’s latest problem.
Together they’ve created a growing concern about the future of Maybe it coincided with the massive oil and gas boom in the last the workforce in Weld. four years. “It’s not an easy answer by any stretch of the imagination,” Maybe it has something to do with values or education or training. said Cathy Schulte, senior vice president of Upstate Colorado Whatever it is, there are a lot of “Help Wanted” signs in and Economic Development. around Greeley and hiring managers are worried. The worker shortage began with an increased numbers of oil “We are in a labor shortage,” said Kevin Aten, chief human and gas jobs. That took people out of other jobs, creating more resources officer for openings. The problem has the Greeley-Evans been exacerbated as more School District 6. companies have to come to “We’re in direct the area, enticing workers competition for some with pay that is typically entry-level jobs. It’s three to four times what they here, it’s Loveland, it’s could get in other careers. Fort Collins, northern “I’ve even lost teachers to Colorado, and our the oil field,” Aten said. friends in Sterling say He’s lost so many bus it’s just spreading.” drivers to the oil fields, he’s KEN YOULAND, Gazelle Trucking Denver-Julesburg Basin manager Workers of all levels staffing his buses with office and pay grades are at workers and trainers. a premium in Greeley, “They get the truck drivers from unskilled labor positions to the high paying energy industry license and leave,” Aten said. “We train them and they stay for a while jobs, even higher-level corporate positions. and leave for the oil fields.” Companies have raised pay, improved benefits and working As the problem mushrooms, companies are feeling additional conditions - they’re even offering sign-on bonuses to attract and pressure. retain staff. “It wasn’t necessarily that our people were leaving the organizations to work in the oil and gas industry as much as it was Companies are not only faced with a shrinking pool of the domino effect of workers in all kinds of places leaving their applicants and higher wage expectations, but applicants with organizations,” said Gene Haffner, spokesman for NCMC, which varied skill levels, commitment, and frankly, a less motivated has experienced trouble finding workers for entry-level positions. work ethic.
“It seems like everyone will offer an extra dollar. That’s the biggest thing, finding someone who will fit.”
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Alma Portillo interviews David Anderson, a hopeful employee, at Express Employment Professionals recently in Greeley. Labor needs in Weld County are currently at a shortage for certain jobs.
“It’s not just oil and gas,” Haffner said. “It’s the economic recovery of the Front Range area.” Through October, the latest numbers available prior to deadline, the county had gained 4,500 jobs in 2014 - 2,300 directly in the oil and gas and construction industries, 1,000 in trade, transportation and utilities,1,000 in government jobs, the rest in varying industries. The area has more employed workers than it ever had. As of October, there were 97,400 in Weld County, according to the Colorado Department of Labor and Employment. Since 2010, when the shale-oil boom hit, Weld employment has grown 22.4 percent. In the last 20 years, that number has grown 69 percent, according to state Department of Labor and Employment numbers. More specifically, employment in the mining, logging and construction industry in the Weld area has grown 74 percent since 2010, and 241 percent in the last 20 years, according to state numbers. By comparison, the Denver-Aurora Metropolitan Statistical Area - where recent reports said most of the oil and gas-related jobs are concentrated - the workforce has only grown 11.8 percent since 2010 and 38 percent in the last 20 years, according to Department of Labor and Employment records. Weld County’s unemployment rate sat at 3.6 percent for October. In Weld, the October unemployment rate was lower only in 1999 at 3.5 percent, according to state numbers. The county’s
SINCE 2010, WHEN THE SHALE-OIL BOOM HIT, WELD EMPLOYMENT HAS GROWN 22.4%. IN THE LAST 20 YEARS, THAT NUMBER HAS GROWN 69%.
30 ENERGY PIPELINE JANUARY 2015
highest annual jobless rate was in 2010 at the height of the recession, when it hit 10.2 percent for the year. “It’s got to be one of the tightest labor markets I’ve ever seen,” said Schulte, who has worked in economic development for 20 years.
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Every day, Express Employment Services in Greeley could fill between 75 and 80 jobs. “We need a slew of workers, welders, CDL drivers, even some basic warehouse laborers, equipment operators,” said Tami Inskeep, operations manager for Express Employment Professionals, 2711 10th St., Greeley. “I need everything from food preparation and dishwashers, all the way up to a senior human resources representative.” • Workers have roughly 200 jobs to choose from on Weld County Employment Services, Connecting Colorado website. • District 6 could employ about 15 teachers, about six classroom assistants called paraprofessionals, and at least 20 more bus drivers. • Many major employers in the area are looking for 10-20 or more new employees today: There are seven openings at the city of Greeley; 15 openings in Weld County government; there are 20 openings at Leprino Foods; JBS had 51 offerings Friday for corporate work in Greeley, as well as in the beef plant in north Greeley.
JANUARY 2015 ENERGY PIPELINE 31
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TAMI INSKEEP, Express Employment Solutions • The Teletech call center was offering a $1,000 sign-on bonus for employees hired in November. Gazelle Transportation created a $4,000 sign-on bonus for oil field truck drivers. Greeley’s newest restaurant, Steak n’ Shake in the CenterPlace shopping center, took about 120 available workers out of the pool last fall. Owner Joe Fernandez said it was a difficult task. “We’re able to be staffed, but it’s been tougher than I thought,” Fernandez said. “I think there’s a lot of competition for the same worker. We’re trying to be competitive with pay. One of the things we did was offer everyone a meal for $1 every time they worked. Everything helps.”
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Inskeep said many variables are occurring with this latest push to fill job openings. Companies are starting to pay more to entice employees in and to stay, but there continues to be a skills shortage, whether it’s what employers call “soft skills,” such as showing up to work on time, or answering phones professionally, or a training issue. For Inskeep, current conditions are more indicative of a skills shortage, as well as a diminishing work ethic, she said, which leads to job-hopping. “We have a generation of workers who don’t think it’s important to work full time or put your best foot forward,” Inskeep said. “That’s where we run into work ethic. If they want to call in sick, they call in sick. The general work ethic of this generation is where a lot of frustration with employers lies.” Schulte, too, hears the concerns from employers all the time.
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INSKEEP SAID TRADES ARE IN SUCH HUGE DEMAND THAT COMPANIES ARE MORE WILLING TO DO ON-THE-JOB TRAINING, AND LOOKING BEYOND FORMALIZED TRAINING It’s created a bit of a construction jobs dilemma of late, with trained construction workers putting down the hammer for better pay in the oil fields. During construction of the general services building at Aims Community College last year, workers actually walked off the job. “We almost didn’t get it finished because oil field folks were paying construction workers and brick layers so much money they couldn’t turn it down. They just left the job,” said Aims President Marsi Liddell. Jeff Demaske, owner of J&J and Journey Homes, was one of the few local constructions companies that fared well in the recession. When the industry rebounded this past year, there were little skills available to local contractors. Many companies jockeyed for subcontractors - the specialty trades like concrete finishers or roofers or electricians, or even the equipment operators and truck drivers - and still are. “I’d hire three or four today if they walked in and were skilled,” Demaske said. “But we can keep doing what we’re doing without them.” Construction is an industry that is a place where people learn through experience. As Demaske said, “The only way to learn is set your ass in the seat. When it comes to framing or concrete or truck driving, the only way to learn is to do it.” “We do training every day,” he said. “About 50 percent of our operators started out as a laborer. The day comes along where the loader operator is out and, ‘Here you go, kid. Run this thing.’ But they have to be willing to start at the bottom.” Inskeep said trades are in such huge demand that companies are more willing to do on-the-job training, and looking beyond formalized training. “We’re getting back to more learning on the job,” Inskeep said. “We’re seeing less companies requiring a four-year degree, or even a GED or diploma. A lot of companies aren’t requiring that because they’re willing to trade for experience. Companies are getting creative on how to bring in the basic worker and train them.” Back at the Greeley school district, Aten is starting to get nervous with his many openings that has put his bus driver trainers in the field. “We’re there. We have a problem,” Aten said. “It’s a good-news, bad-news scenario. The growth is bringing in more kids, providing a stronger economy for Greeley and Evans, which is amazing. We used to get 80 people applying to be a paraprofessional. Now, we can’t get eight. ... The boom is good for rent, homeowners, business, every aspect of the economy, but it also has that unintended consequence.”
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37
CRACKING THE DOOR TO
DRILLING
Pawnee NATIONAL GRASSLAND BY JOHN HAUGHEY • FOR ENERGY PIPELINE
38 ENERGY PIPELINE JANUARY 2015
The U.S. Forest Service’s recent “no surface occupancy” stipulation for developing oil and gas leases on more than 100,000 acres within Pawnee National Grassland is receiving a lukewarm reception from energy industry officials and environmental groups. The NSO condition “will work for the majority of leases in the grasslands” because most of the Pawnee Grassland is accessible by horizontal drilling from adjacent private lands, said Kathleen Sgamma, vice president of government and public affairs for Western Energy Alliance, which supports the oil and gas industry. But the stipulation should not be considered a precedent for proposed oil and gas leases on other federal lands, she said. “Pawnee is a unique patchwork of federal, state and private lands,” Sgamma said. “A predominate NSO works in this situation, but it is not suitable for wholesale application elsewhere.” In October, the Forest Service announced it would impose an NSO stipulation on proposed oil and gas leases following an 18-month study. It reaffirmed that condition by including it in its final Environmental Impact Statement and Draft Record of Decision, which were both published in early December. The NSO stipulation “protects the Pawnee’s unique shortgrass prairie ecosystem and recreation opportunities, while still supporting the economic recovery of oil and gas resources from Colorado’s Niobrara Shale reserves,” said Glenn Casamassa, Arapaho and Roosevelt National Forests and Pawnee National Grassland supervisor, in a press release. “This is a step in the right direction,” said Jeremy Nichols, climate and energy program director for WildEarth Guardians, which has spearheaded opposition to Pawnee Grassland oil and gas development since the Forest Service launched the environmental study in April 2013. Nichols said while the NSO precludes fracking, building well pads, roads, structures, or storing equipment on newly leased lands within the Pawnee Grassland - all important concessions - the Forest Service has adopted a “split-the-baby approach” that doesn’t address how off-site development could impact air and water quality and wildlife. “The Forest Service took the tack that as long as (development) is not on the grassland, it’s not their concern,” he said. “They need to exercise their authority and responsibility to protect the public’s land. To do that, we think it is reasonable to hold neighboring development to a higher standard.” WildEarth Guardians and other groups want the Forest Service to extend its regulatory oversight to horizontal drilling sites on adjacent private lands in a “buffer” around the grasslands, but Reghan Cloudman, spokesperson for the Forest Service’s office in Fort Collins, said the agency’s land-use authority is limited to the grassland.
JANUARY 2015 ENERGY PIPELINE 39
Photo for Energy Pipeline by Jim Rydbom • jrydbom@greeleytribune.com
“There is nothing we could do” outside the Pawnee Grassland or beyond assessing “the surface impacts (of leasing land) roads, pipelines, drill sites,” Cloudman said, noting the agency considered gauging off-site impacts under “cumulative effects,” but ultimately determined it was a regulatory reach.
NEXT: PERMITS TO DRILL The final environmental statement released Dec. 2 opens nearly all federally owned areas of the Grassland for oil and gas leasing. The agency is accepting public comment until Jan. 20 on both documents. While the recommendations allow for oil and gas leases to be auctioned to the highest bidder, they do not authorize oil and gas development. To develop Grassland leases, producers must file an application for a permit to drill with the Bureau of Land Management. Western Energy’s Sgamma doesn’t expect to see any permit applications given the green light anytime soon. “After the lease EIS is finalized, we’ll see what leases become available when they are sold at auction,” she said. “Each producer will have a plan on how they will develop the lease as part of their APD that will be evaluated case-by-case (by the BLM) in compliance with a multi-layered NEPA (National Environmental Policy Act) analysis before the drill-bit starts to turn.” Sgamma would not venture a guess when all that will happen. “You cannot predict how long it will take a federal agency to do anything,” she said. “The Forest Service took several years to do the EIS. How long it will take for (the BLM) to approve permits, you cannot predict.” “It will be another year or more before we see drilling,” Nichols estimated. “The timing may vary - oil prices - but these lands, they will be drilled.” The Grassland spans 146,367 acres within a 192,000-acre mix of public/private lands between Fort Collins and Sterling. About 43,000 acres already have been leased under rules adopted in 1997. The updated stipulations only apply to the 100,000 presently unleased acres. The only Grassland lands not available for lease are the Pawnee Buttes and Crow Valley Campground areas. According to the environmental statement, if all potential leases were developed, the 40 ENERGY PIPELINE JANUARY 2015
Grassland would produce approximately 590 million barrels of oil and 1.1 billion MCF of gas - 1 MCF equals 1,000 cubic feet - from as many as 265 new wells over the next 30 years. The EIS estimates that, at an anticipated average annual production of 19.6 million barrels of oil and 39.3 million MCF of natural gas, Grassland leases will generate $241 million in federal royalties a year; support nearly 2,500 direct, indirect, and induced jobs; and contribute $113.5 million annually to the region’s economy over a three-decade span. Weld County would reap a projected $154 million increase in annual property tax revenues directly from Grassland oil/gas leases. In addition, the county is forecast to receive about $23 million in annual federal rent and royalties revenue, and about $4.3 million a year from state severance taxes on Grassland production.
WHY NSO IS WAY TO GO The Forest Service chose the NSO alternative over two other options: No Action and No Leasing. According to the environmental statement, the No-Action option would have retained the 1997 regulations, drafted before advances in hydraulic fracturing and horizontal drilling changed the economic and environmental dynamics of oil and gas development. The No Leasing option also would have prohibited surface development on the Grassland, but would spur development on private parcels within the 192,000-acre checkerboard mix of public/private lands.
“One of the reasons they went with the NSO (option) is because it is less intrusive than the ‘No Leasing’ option, which would have allowed up to 60 percent more surface disturbance” on neighboring private and state lands than the NSO alternative would, Cloudman said. In his Dec. 2 press release, Casamassa said the Forest Service also had to achieve the “leasable minerals objectives” in the Mineral Leasing Act and meet a mandate in its own minerals policy to “foster and encourage mineral development on National Forest lands in an ecologically sound manner.” Casamassa said the NSO alternative satisfies the “leasable minerals objective” by designating nearly all unleased areas on the Grassland available for lease. “Even though leases will not allow surface occupancy, the EIS forecasts that, using horizontal drilling, 100 percent of the recoverable oil and gas can be extracted,” he said. “Because the NSO alternative will result in the least surface disturbance, wells and well pads, and 100 percent of the oil and gas can be recovered, it best meets leasable minerals objectives.” Western Energy and the Colorado Oil and Gas Association - which referred all queries to the Western - initially objected to the NSO alternative because it would impose additional costs by forcing producers to lease adjacent private or state lands to develop federal mineral rights on Grassland leases. Ultimately, Sgamma said, the industry’s primary concern with the final decision is that they include an exemption process and not
Photo for Energy Pipeline by Jim Rydbom • jrydbom@greeleytribune.com
protect public land by making sure there are protections in place” even if (the drilling) is on private land. “Certainly, this isn’t draconian. This should be part of the deal,” he said. “This is public land - owned by the people. For the privilege of extracting minerals from public land, from the people, you should be held to a higher standard.”
BROADER SIGNIFICANCE?
impose “a blanket NSO” on every lease. “Most potential leases are surrounded by private lands, but they need to retain some flexibility because some leases cannot be reached solely” through private lands, she said. “I think it needs to be site-specific.” The final recommendations do include a clause allowing for waivers, exceptions or modifications to the NSO stipulation. “As with everything,” Cloudman said, “there are going to be site-specific needs for each individual lease or proposal, and we will look at those as we do now on an individual basis.”
OBJECTIONS, CONCESSIONS In its draft EIS, the Forest Service states that the “checkerboard land pattern in the area allows for oil and gas resources to be accessed from adjacent private and state lands, as well as existing leases on the PNG where surface occupancy is allowed.” This, the agency states, reduces the “overall environmental impact of that activity in the region.” Nichols, however, said the same “fragmented expanse” of mixed federal, state and private land makes it “challenging” to document and accurately assess environmental effects of development when the standards for gauging impacts can vary from tract to tract. The environmental impacts of oil and gas development are not limited to impacts from the well and well pad, he said, noting there are collateral effects from traffic to the well sites, emissions, road development, pipelines and soil degradation.
In an Oct. 20 EIS comment letter, WildEarth Guardians said the study inadequately addresses impacts to air quality standards for greenhouse gases such as smogforming ozone and nitrogen compounds, as well as particulate matter. The group also said the EIS doesn’t properly evaluate how new drilling would affect Grassland wildlife, including pronghorn antelope, black-tailed prairie dogs, burrowing owls, swift fox, ferruginous hawk, long-billed curlew, Brewer’s sparrow and chestnut-collared longspur. Casamassa conceded that developing Grassland leases “will increase (greenhouse gases) and their social cost. However, this increase is negligible in the context of mineral development in the Royal Gorge Area and inconsequential in the context of global emissions.” Nichols said the Forest Service should “take a step back and re-do” the EIS, but he said he knows that isn’t going to happen. “Extensive industrialization is not compatible with sustaining public lands,” he said. “But these lands, they will be drilled. In ‘striking a balance,’ we think (the Forest Service) can do it better.” Sgamma said despite objections from WildEarth Guardians and other groups, the final environmental statement did not “deviate significantly” from the draft version because “fractivists” contributed “nothing substantial - just the same anti-fracking response. They hadn’t thought it out too well.” Nichols said WildEarth Guardians will continue to insist that the Forest Service “exercise its authority and responsibility to
Nichols said the NSO stipulation that allows oil/gas development from - but not on - a national grassland is significant “because of the nature of the development that is going to happen. Fracking, horizontal shale drilling, economically, it’s a viable technology and it hasn’t happened - yet - in a lot of places.” There are similar proposals to develop oil/gas leases on Wyoming’s Thunder Basin and North Dakota’s Little Missouri national grasslands, he said. National grasslands have “high potential for oil and gas” development because, he said, “the geology is there,” and they are easier to access than forests and mountains. “The timing definitely sets a precedent for no surface occupancy. In general, I think the Pawnee is a forerunner,” Nichols said. “We fear it will open the door to a significant ramp-up to additional drilling.” Sgamma dismissed the viability of the NSO stipulation as a potential precedent because few other federal lands feature the mix of public/private lands that makes the Grassland unique. For instance, she said, horizontal drilling would not be as broadly applicable on Thunder Basin and Little Missouri because both are vast, contiguous swaths of federal tracts far removed from private land. Without advances in horizontal drilling - innovations cited repeatedly in the EIS the Forest Service may not have approved offering oil/gas leases on the Grassland, Sgamma conceded, but she balked at declaring the decision a significant victory for horizontal drilling on Western federal lands. “No,” she said, “I would say horizontal drilling has been a significant victory for the entire nation for years. (Horizontal drilling) allows us to produce so much more while disturbing so much less, to extract more energy with a smaller footprint.” JANUARY 2015 ENERGY PIPELINE 41
42 ENERGY PIPELINE JANUARY 2015
POWER CHANGE POWER COMPANY HOPES TO PLUG MORE RIGS INTO HIGHLINE POWER BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
Every time Josh Bartlett and his team travel the Rocky Mountains east from his office in Rifle, there’s always a point in the trip where they stop and shake their heads.
DENVER’S BROWN CLOUD HOVERS. But the haze that made Denver a target for environmental protection in the past two decades has migrated to northern Colorado and the rest of the Front Range. It hangs in a constant, if not otherwise invisible, reminder that the oilfield is near. “When you come in off of I-70 and crest over the hill, and you can see Denver and the Front Range, it’s just a thick cloud right over it,” said Mike Hefferon, vice president of sales and marketing for Bartlett Power and Automation, which is working to bring electricity to the Wattenberg’s drilling rigs. “When you’re in it, you don’t see it.” What bothers Josh Bartlett is not the so-called “fracking” that people have labeled as the problem in the booming Colorado energy industry. It’s far from it.
JANUARY 2015 ENERGY PIPELINE 43
“We’re sitting in a cloud of diesel exhaust right now,” said Bartlett, owner and founder of Bartlett Power and Automation, based in Rifle. “We’re breathing it now at parts per million and that’s not good. ... I’m a little stupefied by the fact that we have 50 drilling rigs burning diesel every day, but we haven’t heard a single word” about the pollution from that. “If you cut out 50 rigs running on generators, that’s 100,000 gallons (of diesel) every day that’s not being burned,” Bartlett said. Bartlett got the first electric drilling rig in Colorado drilling at lighter volumes with less pollution last summer. That rig was just outside of Greeley. He is hoping to move his services into the Wattenberg Field in greater numbers after initially working with Extraction Oil and Gas and Anadarko Petroleum, providing electric power to their drilling rigs. It’s another step in the move toward automation in the oil field, which will go along way toward meeting government environmental standards that are getting stricter every year. Bartlett isn’t the only one with the bright ideas. Ensign Energy, based in Denver, is running automated drilling rigs that run off of natural gas engines - a much cleaner-burning fuel than diesel - and it has recently unveiled its battery-powered hybrid rig west of Mead in southwestern Weld County. 44 ENERGY PIPELINE JANUARY 2015
WHAT BARTLETT OFFERS IS A MEANS TO CONNECT TO HIGHLINE POWER TO RUN DRILLING RIGS OFF OF ELECTRICITY RATHER THAN DIESEL FUEL Bartlett has two mobile substations that are placed on drilling sites on skids. They’re 20,000 pounds and measure 10 feet by 20 feet in area. They use them to connect directly to the highline wire. Bartlett, a master electrician who got his start in the gas fields on the West Slope, changed his business model years ago, moving from billable hours to equipment rental. The business provides mobile power distribution and mobile power generators to drilling locations all over the United States. With current debates over pollution due to the massive drilling boom in northern Colorado, he and his team saw a niche with portable electrical substations.
“When you look at the big picture, the diesel generators are really causing a lot of pollution, and we saw that opportunity and that niche in the market to come up with a better solution to power the drilling rigs,” Hefferon said. “That’s where we came up with highline and creating substations.” Today, most drilling rigs run off of diesel generators. Far from urban infrastructure, they must rely on the generators to run. And that means a lot of diesel. Typically, drilling consumes form 2,000 to 2,400 gallons of diesel every day per rig, depending on the weather. The colder it is, the more diesel that is burned. What Bartlett offers is a means to connect to highline power to run drilling rigs off of electricity rather than diesel fuel. “When you tap into the power grid, you completely cut out the pollution in that area, and you cut the noise out,” Bartlett said. “It’s very robotic, so you really just hear hydraulics and AC motors, winding up, and some pipe dinging. You don’t hear a bunch of clanking and raw noise.” The governor’s task force on oil and gas last fall toured an Anadarko Petroleum Corporation’s drilling site in southwestern Weld County, in which they were utilizing highline electricity to power the rig. Diesel generators were on site as back-ups, but the difference in drilling noise and pollution is night and day, officials say. That site was Anadarko’s first, but there are hopes that it won’t be their last.
Bartlett places an electric power substation on a rig to help power drilling rigs with electricity. The substation connects directly to highline wire.
Photos for Energy Pipeline by Bartlett Power & Automation.
“That’s our one and only shot at electric,” said Robin Olsen, spokeswoman for Anadarko, noting the company was trying it out. “It is cleaner and quieter and we are looking at exploring more use of electric rigs in the Wattenberg.” The electric drilling rig is not a cure-all, and not always a feasible solution - especially in remote areas. In a county the size of Delaware, some drilling is so remote, pads are too far away from the power lines. Building lines to reach those power lines is expensive and requires getting easements and rights of way, typically through several properties to do so - not always an easy task when dealing with several landowners. Bartlett said he’s lost jobs because landowners wouldn’t cooperate with easements. The entire operations also are predicated on convincing an electric utility to give them 2 to 3 megawatts of power daily for each operation - again, not so easy. “The right way to do it is take a power line off the plant, and run it right to the oil field,” Bartlett said. “Unfortunately the oil field here is in actual communities and neighborhoods. Chesapeake is doing this in Wyoming now. They’re drilling north of Douglas, and the just took a power line off the power plant and brought it straight in. They’ve got three to four rigs running off highline power. That’s the kind of scale you build your way up to.” Matt Owens, president of Extraction Oil and Gas, drilled one multi-well pad with an electric rig north of Greeley this past summer, and he said he liked what he saw - and heard.
“It’s definitely efficient, it reduces emissions, pollution, noise, and helps the equipment run smoother,” Owens said. “We plan on doing that where we can, but it could take a while to get everyone ... on the same schedule. ... We did it the first time because we realized we had an opportunity with the unique location of that pad. What we really wanted to do was test it, since it hadn’t been utilized out here yet, and see if the rig could be run quietly, and it ran great.” The exhaust generated from diesel engines is substantial, those in the field acknowledge, but it so far hasn’t generated complaints. “We never got a call someone saying, there’s exhaust coming off that big engine... so we were trying to mitigate noise,” Owens said of his trial run on highline power. While acknowledging how difficult and expensive it could be to run electric rigs in more rural settings, Owens said electric rigs could be a solution to the concerns neighbors have in more urban neighborhoods, and quell some residents’ concerns about a highly industrialized process in their backyards - if the other barriers could be overcome. “We were really trying to eliminate the noise,” Owens explained. “Even with sound walls, you still don’t mitigate 100 percent of noise” in a typical drilling operation. “That’s what we thought was the biggest benefit we could get ... eliminating the hum
of generators. That seems to be what most complaints are about.” Extraction, as an example, recently bought a majority interest in Mineral Resources in Greeley, which made its niche in Greeley leaseholds. Extraction also took over Tekton Energy months ago, which had several drilling locations around posh neighborhoods in Windsor. Being closer to utilities in those areas may make it easier to run electric rigs closer to population centers - if Owens’ team can connect the rigs to the power lines. Since June, Bartlett has been able to provide the power for eight Extraction wells and three Anadarko wells. It’s not unfathomable to connect to the grid in much of the Wattenberg, Bartlett said. “You see those drilling rigs up I-25? There’s a very large transmission line there. There’s no reason they can’t be running off of highline power,” Bartlett said. “It can get expensive, but the longer you drill, the quicker you get the rate of return. We’ve seen rates of returns happen in the first month. So whatever infrastructure they bring in, it gets paid off in the first month.” JANUARY 2015 ENERGY PIPELINE 45
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WEL OIL P D COU RODU NTY CTIO N
COLORADO’S OIL PRODUCTION FLIPS BETWEEN FIELDS BY TRACY HUME • FOR ENERGY PIPELINE in 2013, Colorado broke a 56-year-old record for crude oil production. Data collected by the Colorado Oil and Gas Conservation Commission showed a record-breaking 64.9 million barrels were produced in Colorado in 2013. The previous record was set in 1956, when Colorado produced 61.9 million barrels. Monthly production figures for 2014 appear to be running ahead of 2013’s figures. However, COGCC won’t have final, verified 2014 crude oil production figures for several months. Will 2014 be another record-breaking year for Colorado? Although it is still too early to tell, looking at the factors behind the production records set in 1956 and 2013 record may give clues as to what the future holds for Colorado crude oil production.
BEHIND THE NUMBERS The story of Colorado’s record-breaking oil production is about more than just total annual barrels produced. The “where,” “why” and “how” behind the numbers tell the interesting part of the story. COGCC has been tracking statistics related to oil and gas production in Colorado since the commission was established in the early 1950s. Thom Kerr worked for COGCC for 23 years. Now retired from COGCC, he works as an independent consultant for the industry, but he still knows his way around the data. He used annual oil production data to put together a graph that neatly tells the story of the 1956 and 2013 production records. “The big story in 1956 was in the Denver-Julesburg basin,” said Kerr. “They were finding channel sands in the D and J sand formations in the Denver basin. A lot of fields were discovered in Morgan, Logan and Washington counties, and some of those fields were amazing.” Indeed, in 1956, Washington County produced 6.8 million barrels; Logan County produced almost 8 million barrels; and Morgan County produced 12 million barrels. Those three counties accounted for about 43 percent of Colorado’s total oil production in 1956. But the county that made the single biggest contribution to Colorado’s production record in 1956 was Rio Blanco County. Rio Blanco County is located in western Colorado, near the Utah border. The giant Rangely Oil Field is located in the county. The Rangely Field is one of the oldest and largest oil fields in the Rocky Mountain region. 48 ENERGY PIPELINE JANUARY 2015
Rio Blanco County’s contribution to Colorado’s 1956 production record was 30.2 million barrels, which was equal to almost 49 percent of Colorado’s total production that year. By way of comparison, Weld County contributed a paltry 1.5 million barrels to Colorado’s total production in 1956. According to COGCC data, it wasn’t until much later, in 2000, that Weld County bested Rio Blanco County with respect to percentage of Colorado’s total oil production. In 1999, Rio Blanco was still ahead, producing 6.65 million barrels, which represented 33.78 percent of Colorado’s total annual production; that same year, Weld County was right behind Rio Blanco County, producing 6.48 million barrels, which represented 32.89 percent of Colorado’s total production. In 2000, Weld County finally bested Rio Blanco County. Weld County produced 7.08 million barrels (35.37 percent of Colorado’s total). Rio Blanco County produced 6.52 million barrels (32.56 percent). Over the last 14 years, Weld County has continued to significantly outproduce Rio Blanco County. In 2013, the last year for which final figures are available, Weld County produced 52.6 million barrels (81 percent of Colorado’s total production) to Rio Blanco’s 2.9 million barrels (6.1 percent of Colorado’s total production). What made Rio Blanco County the largest contributor to Colorado’s oil production in 1956? And why did Weld County usurp that role in 2000? The answer to those questions lies largely in the attributes of three variables that significantly impact oil production. Those three variables are the location and nature of the resource; the market for that resource; and the technology used to access the resource.
THE COUNTY THAT MADE THE SINGLE BIGGEST CONTRIBUTION TO COLORADO’S PRODUCTION RECORD IN 1956 WAS RIO BLANCO COUNTY
JANUARY 2015 ENERGY PIPELINE 49
SOURCE: DATA PROVIDED BY COGCC AND THOM KERR
Over the past 15 years, the use of horizontal drilling and hydraulic fracturing in the Wattenberg Field has allowed Weld County to overtake Rio Blanco County as a major contributor to Colorado’s annual oil production.
LOCATION, LOCATION, LOCATION
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The real estate agents’ mantra, “location, location, location,” can apply equally well to oil production. But beyond simple location, oil production is specifically about geological structure. Bob Weimer began working full-time in the oil and gas industry in 1949, after earning a bachelor’s and a master’s degree in geology from the University of Wyoming. He earned his doctorate in geology from Stanford in 1953, and served as a professor of geology at the Colorado School of Mines for many years. “As a petroleum geologist, Colorado is an interesting area to study,” Weimer said. “It is an unusual area because you can observe a lot of the rocks that contain oil along the flanks of the mountains. You can use direct observations of the different rock formations and map the structure. “Rangely has a large dome-type uplift called an anticline,” explained Weimer. “That was a known structure, identified in the early mapping done by geologists. There were also some seeps of gas, and maybe some oil as well, along the White River, which gave the petroleum geologists reason to believe there would be oil and gas accumulation at depth.” An anticline is like an upside-down bowl, under the earth’s surface. Impermeable rock in the dome structure traps an accumulation of oil and gas. The anticline structure at Rangely created a conventional target for the industry: oil in a known structure, accessible by vertical wells and conventional pumping equipment. Rangely Field’s conventional anticline structure contrasts significantly with the Wattenberg Field’s low-permeability (tight) formation. “It’s a different horizon,” explained Steve Sonnenberg, professor and Charles Boettcher Distinguished Chair in Petroleum Geology at the Colorado School of Mines. “The current drilling activity in the Wattenberg is largely chasing the Niobrara and the Codell sandstone. Those two reservoirs have much lower reservoir quality. Porosity - the pore spaces in the rock - and permeability - the connected porosity that enables fluids to flow through the rock - are much lower in the Wattenberg and the Niobrara and the Codell sandstone than it ever was in Rangely. “Rangely was a pretty high quality reservoir to begin with,” said Sonnenberg. “The Niobrara and the Codell sandstone are located in the bottom of the sedimentary basin, fairly deep. They require hydraulic fracture stimulation because without it, quite honestly, they would be uneconomic wells.”
Another factor that clearly impacts production in any given year is the price of oil. “In general, production is related to the number of wells being drilled,” said Sonnenberg, “and when the price of oil drops, it impacts whether somebody is going to drill wells or not. If the price of oil goes down, depending on what a particular company’s economics are, they may decide not to drill any more wells. It is one of those things that is always operator-specific.” Lack of a market contributed to the Rangely Oil Field’s slow start. Shallow wells were drilled into the Mancos Shale formation in Rangely in the very early 1900s; it wasn’t until the early 1930s that Chevron drilled deeper and hit a vast reservoir of oil in the Weber (pronounced WEE-burr) Sandstone. “There was not a lot of market for the oil they found in 1902, and for the oil they produced in the 1920s and ‘30s,” Weimer said. “The oil price you would get in the marketplace from the refinery was less than one dollar per barrel at that time.” Only after WWII ended in 1945 did the price of oil begin a consistently upward trend, jumping to $2.60 per barrel by 1948. Production rose accordingly. “By the end of ‘45, 182 wells had been drilled at Rangely,” Weimer said, “and in ‘46, there were 54 rigs operating in Rangely.” According to U.S. Energy Information Administration data, oil was priced at $2.79 per barrel in 1956, Colorado’s record-breaking production year. “Still, if they drilled a well in 1956, they would have to find the money to drill,” said Weimer. “And then get a contract and leases and so on. And it would cost them $3 a foot, if it were a dry hole. If it is a dry hole, you just pull out of the hole and plug it. And so if it were a 5,000 foot dry hole, it would cost you $15,000. “But if you found the sand that had oil in it, mainly oil or gas and oil, you would still have to spend money to complete the well - you would have to run more casing to total depth; seal off the near surface water bearing sands; put tubing down the hole, inside the casing; and then install the pumping equipment and so on,” said Weimer. “It was a big decision to make, whether or not if you drilled the well you could produce it at an economic rate. That was a critical factor, because you had to invest so much money.” For people interested in a personal look at the history of that time, Weimer recommends the book, “A Look Back: The D-J Play, 19501965” which was published in 1998 by R.E. Chancellor and A. A. McGregor. “It is an interesting collection of personal reminiscences,” Weimer said. “They do a good job of describing what these people
50 ENERGY PIPELINE JANUARY 2015
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SOURCE: DATA PROVIDED BY THOM KERR BASED UPON COGCC DATA
Between 1952 and 2013, the Wattenberg Field overtook the Rangely Field as a major contributor to Colorado’s total annual oil production.
went through, what the risks were that they took, what it meant to be successful, and what it meant to go broke.” The market played a significant role in Colorado’s 2013 production record as well. EIA data indicates the price of oil in 2013 was $95.99 per barrel, which, at that time, was the highest price per barrel ever recorded. This past year has been an extremely volatile year for oil prices, with the West Texas Intermediate crude oil benchmark exceeding $100 per barrel in July, and then dropping to below $70 per barrel in December 2014. The price drop came so late in the year, it may not have a significant impact on Colorado’s final 2014 production numbers, but could make a difference in 2015.
THE ROLE OF TECHNOLOGY
52 ENERGY PIPELINE JANUARY 2015
The third factor critical to oil production records is the technology used to access the oil. When the first deep well - the Raven A-I - was drilled in the Rangely Field, it took nearly two years to break through the Weber sandstone. “The thick, thousand foot Weber sandstone reservoir was a very difficult reservoir to drill with the tools available at that time,” said Weimer. “They developed a new innovation of drilling the wells through this interval to depths of 5,000 to 6,000 feet, by drilling and coring with diamond bits. The diamond, being a very hard substance, was able to drill that economically. Whereas the other type rotary bits were not very effective.” In addition to the bits, other oilfield technologies, such as pumping equipment, evolved as well. Ken Bailey, an amateur photographer who attended high school in Rangely during the late 1960s and early 1970s, watched with fascination as the oil field technology in Rangely evolved over time. In his photographs, he documented the evolution of the pumping equipment as it changed from conventional pumping equipment, like the Lufkin 64 used at the Raven A-I Discovery site, to replacement equipment designed for secondary (water flooding) and tertiary (carbon dioxide flooding) recovery phases in the field. “Back when Rangely still had hundreds of these walking beam pumpers, the great majority of them were running on internal combustion engines, so they made a chugging or a rumbling sound,” Bailey remembered. “The town was at one end of the field, and at night when the air was clear, the hundreds of pumps in the field made a kind of distant rumbling sound that actually was rather soothing.” “The Rangely Field today is vastly different from the era of my photographs,” Bailey said. “Today most of the wells are pumped by
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“In fact, the latest uptick in production is all related to technological changes.” DR. STEVE SONNENBERG, professor, Colorado School of Mines
electric pumps underground and there is no sound at all. A person driving through Rangely Field today would be lucky to see any pumps. There is not much on the surface but tanks and buildings.” Just as the development of diamond bits and more efficient pumps has enabled the Rangely Field to be produced more effectively, the development of horizontal drilling and hydraulic fracturing has enabled the Wattenberg Field to be produced more efficiently and economically. “The technology always advances through time,” said Sonnenberg. “There were deep wells drilled in the 1950s, but when we got into the ‘60s, ‘70s and ‘80s, the drilling technology dramatically improved and enabled wells to be much deeper. The bits improved, the rigs improved, everything improved through time.” “Technology plays a huge role in production,” Sonnenberg said. “In fact, the latest uptick in production is all related to technological changes. And the largest part of that is horizontal drilling and multi-stage hydraulic fracturing.”
THE OUTLOOK GOING FORWARD
54 ENERGY PIPELINE JANUARY 2015
The Rangely field has been steadily producing oil for nearly 70 years, when primary production, secondary production and tertiary production are taken into account. Thom Kerr notes that between 1952, when the COGCC started keeping statistics, and the first part of 2014, the Rangely Oil Field has produced a cumulative total of 783.6 million barrels of oil. The Wattenberg, which started producing oil in 1970, has produced a cumulative total of 296.1 million barrels of oil. That is equivalent to 38 percent of Rangely’s total production. Considering the fact that Rangely had at least a 20-year headstart, “Wattenberg’s production is phenomenal,” said Kerr. Is it possible that the Wattenberg Field will see the same long life that the Rangely Field has had? According to Kerr, that answer is yet to be determined. “Rangely and Wattenberg are completely different plays,” Kerr said. “All reservoirs function on porosity and permeability. In the conventional reservoir, like Rangely, you have much greater porosity and permeability. So in the initial phase of production, you may recover 20-25 percent of the oil in place. And then you start secondary recovery, typically water floods. And then you go to the next phase, tertiary recovery, which is an even more enhanced process, using CO2 or heat or some other methodology. “What you are trying to do is to get your recovery factor up. Ultimately, the recovery in Rangely, of the total oil in place, may be 50 percent, or 60 percent if they are really lucky,” Kerr said. “But the Wattenberg is not a conventional reservoir, so the porosity and permeability are not in place there for a well to produce on traditional methods, such as reservoir pressure and pumping. It requires additional technology. It requires artificial stimulation, which is hydraulic fracturing.” And as for the potential total recovery from an unconventional reservoir, Kerr said, “that is what they are still trying to figure out and learn.”
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News Briefs Halliburton names leadership team for Baker Hughes acquisition Halliburton Company’s Board of Directors has appointed Mark McCollum to executive vice president and chief integration officer to head up the pending acquisition of Baker Hughes. McCollum had been serving as Halliburton’s executive vice president and CFO of Halliburton, and will continue to be a member of the company’s executive committee. Christian Garcia, senior vice president and chief accounting officer, will become senior vice president of finance and assume McCollum’s CFO responsibilities on an interim basis. McCollum will resume his CFO duties at the conclusion of the two companies’ integration, according to a news release. Garcia will join Halliburton’s executive committee. Charlie Geer, currently vice president of finance, will become vice president and corporate controller and will take over Garcia’s accounting responsibilities during the transition. The new roles were effective Jan. 1, 2015. Belgacem Chariag, president of Global Products and Services for Baker Hughes, will serve as lead for Baker Hughes on the Joint Integration Team, the release stated. On Nov. 17, Halliburton and Baker Hughes jointly announced a definitive agreement under which Halliburton will, subject to the conditions set forth in the agreement, acquire Baker Hughes in a stock and cash transaction. - Staff Reports
Noble Energy donates $95,000 to Weld Food Bank Noble Energy donated $95,000 to the Weld Food Bank to buy a new 38-foot refrigerated box truck capable of transporting 12 pallets of food. The new truck will have a compressed natural gas engine, which will result in increased fuel efficiency and a fuel cost savings to the food bank, according to a news release. “Weld Food Bank serves all 4,000 square miles of Weld County and this new vehicle will allow us to pick up and deliver more food, in an effort to make sure that no one in our community goes to bed hungry,” said Bob O’Connor, executive director of Weld Food Bank, in the release. “Since 2005, the food bank has almost tripled our food distribution, so expanding our fleet will allow us to keep up with the need to transport food to and from the food bank.” The addition of this truck to the Weld Food Bank fleet allows the food bank to reach farther into Weld County and establish new partnerships resulting in an increase in donations from retailers, restaurants and farmers. This vehicle will service all 4,000 square miles of Weld County daily, picking up food from retail and farm locations and delivering food to the food bank’s Non-Profit Partner Agencies, the release stated. “Noble Energy is pleased to have the Weld Food Bank as one of our most important partners in Colorado. The new truck will help the food bank reach more people in our region and Noble is proud to be a part of that mission,” said Dan Kelly, vice president for Noble Energy in Colorado, in the release. - Staff Reports
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U.S. rail traffic, including carloadings of all commodity types, has increased 4.5 percent through October 2014 compared to the same period in 2013, according to a brief issued by the U.S. Energy Information Administration. Crude oil and petroleum products had the second-biggest increase in carloadings through the first 10 months of the year, the brief states, with these shipments occurring in parts of the country where there is also strong demand to move coal and grain by rail. In response to shipper concerns over the slow movement of crude oil, coal, grain, ethanol, and propane, federal regulators are closely tracking service among the major U.S. freight railroad companies, the brief stated. Rail carloadings of oil and petroleum products totaled 672,118 tank cars during JanuaryOctober 2014, 13.4 percent higher than the same time a year ago, according to the Association of American Railroads, beefed up by rising U.S. crude production. Rail shipments of coal were up a relatively small 0.3 percent during the same period, but coal is still by far the largest commodity volume moved by rail, with 4.9 million carloadings, the brief stated. Nationally, coal exports were down nearly 16 percent during the first half of 2014, but coal exports from the Seattle Customs District (mostly sourced from Wyoming’s Powder River Basin) were up 2.4 percent during the first half of the year, the brief stated. - Staff Reports
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All three Manufacturers are known for their superior quality and lasting performance—our priorities, precisely. For those times when you need to buy new—and those when recycled makes sense—count on Active. Along with these new items, we stock the region’s largest inventory of recycled and rebuilt parts for medium and heavy-duty trucks. Our people can help you find what you need, fast, even when you’re not certain what you need. Call us—866.238.4579—or visit us at www.activetruckparts.com
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API: Oil and gas leasing overseas could increase American economy Offshore oil and natural gas leasing in the Eastern Gulf of Mexico and the U.S. Atlantic and Pacific coasts could create nearly 840,000 American jobs and raise more than $200 billion in revenue for the government, according to new studies. “The oil and natural gas industry is a rare bright spot in our economy,” API Director of Upstream Erik Milito told reporters in a conference call last month. “The ability to safely develop new offshore resources is critical to America’s continued energy security and job growth.” The two new published studies examine the economic impact of opening the U.S. Pacific Outer Continental Shelf and the Eastern Gulf of Mexico to offshore oil and natural gas development, according to a news release from API. A previously released study in this series focused on the Atlantic OCS. If the federal government begins holding lease sales in these regions in 2018, the release stated, the studies reveal that in 20 years, • Pacific OCS development could create more than 330,000 jobs and raise $81 billion in government revenue.
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• Eastern Gulf of Mexico development could create nearly 230,000 jobs and raise $69 billion in government revenue.
Live Blues Band 5:30 - 7:30PM Contemporary Cook Café will be open 5:00 - 8:00PM
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• Atlantic OCS development could create nearly 280,000 jobs and raise $51 billion in government revenue. These areas today are almost entirely off-limits to offshore oil and gas development but could be included in the federal government’s next five-year leasing program, the release stated.
Early Bird Special* Music - $2.00 Cover Meal - $5.00 *Purchase tickets by 2:00pm - Thursday, January 29th
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“Polling shows that 70 percent of voters in this year’s midterm elections support offshore drilling, and 57 percent do not think the federal government does enough to encourage domestic oil and natural gas production,” said Milito in the release. “The next offshore leasing program is an opportunity for the Obama administration to let those voters know their voices are being heard.” An interactive map with state-by-state results for all three studies can be found at maps.api.org/offshore. All studies in this series were conducted by Quest Offshore Resources, Inc. at the request of API and the National Ocean Industries Association.
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API represents all segments of America’s oil and natural gas industry. Its more than 600 members produce, process, and distribute most of the nation’s energy. The industry also supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. - Staff Reports
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News Briefs
Encana reports it is two years ahead of schedule In its third-quarter returns, Encana reports it had a pivotal third quarter in which it reached some key milestones early in the company’s strategy.
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Encana reports it generated third-quarter cash flow of approximately $807 million or $1.09 per share, representing a 22 percent increase over the year, and operating earnings of $281 million or $0.38 per share, an 87 percent increase. Net earnings attributable to common shareholders were $2.8 billion or $3.79 per share. “Our third-quarter results highlight the tremendous momentum we have built executing our strategy and we are now a full two years ahead of the targets we originally set for 2017,” says Doug Suttles, Encana president and CEO, in a news release. “The steps we have taken to transform our portfolio and drive cost efficiencies have delivered an over 50 percent increase in upstream operating cash flow against an 8 percent decline in overall production, compared to the same period in 2013. This highlights our focus on delivering value versus volumes. Consistent with the strategy we announced one year ago, we have built a balanced and resilient portfolio that comprises high-quality oil, natural gas liquids and natural gas investment opportunities.”
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During the third quarter, Encana announced it would acquire Texas-based Athlon Energy Inc. to gain a key position in the Permian Basin in Texas. The transaction puts Encana on track to realizing an expected 75 percent of operating cash flow from liquids production in 2015 - marking a significant strategic milestone two years ahead of plan, according to the release. “The accelerated execution of our strategy has placed us in a position of strength.” Encana achieved another major milestone during the third quarter by exceeding 100,000 barrels per day (bbls/d) of total liquids production. Third-quarter oil production of approximately 62,100 bbls/d was up 128 percent compared to the same period in 2013 and 82 percent over last quarter. This increase was driven in part by volumes from the recently acquired Eagle Ford position, which accounted for approximately 37,600 bbls/d of liquids production. Natural gas liquids production during the third quarter averaged about 41,900 bbls/d, an increase of 35 percent year-over-year and 23 percent over last quarter. In addition, liquids volumes from the original five growth areas identified by Encana in last year’s strategy announcement (the Montney, Duvernay, San Juan Basin, DJ Basin and Tuscaloosa Marine Shale plays) have increased 70 percent year-over-year from approximately 24,000 to 41,000 bbls/d, according to the release.
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JANUARY 2015 ENERGY PIPELINE 65
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MAKING HOLE A look back at the origins of oil and gas BY BRUCE WELLS • AMERICAN OIL & GAS HISTORICAL SOCIETY
“Making Hole” is a term for drilling coined long before oil or natural gas were anything more than flammable curiosities. LOU DELLA CRIM REVEALS EAST TEXAS OILFIELD Three days after Christmas in 1930, an oil discovery on the farm of the widow Lou Della Crim revealed the true extent of the East Texas oilfield. Some say a gypsy predicted the historic strike for Malcolm Crim. Others say it was because his mother, Lou Della “Mama” Crim, was a pious woman. On Dec. 28, 1930, Mrs. Crim’s eldest son hit a gusher on her Rusk County, Texas, farm. The Lou Della Crim No. 1 well initially produced 20,000 barrels of oil every day. “On Sunday morning, while Mrs. Crim was attending church, the Lou Della Crim well blew in,” says Joe White, founding director of the East Texas Oil Museum in Kilgore. The oil strike was about nine miles north of an earlier discovery on another widow’s farm. In October, the Daisy Bradford No. 3 well of Columbus “Dad” Joiner had disproved experts who claimed East Texas contained no oil. At the time, the distance between these two major discoveries convinced geologists - and major oil companies - that the wells had found separate oilfields. No one was aware that the “wildcat” exploratory wells were part of what was then a geological phenomenon, says White, who founded the East Texas Oil Museum in 1980 and retired in August. “An incredible deposit of oil in the Woodbine formation had ‘pinched out’ as it tilted upward against the Sabine Uplift, creating the massive East Texas oilfield,” White explains. 66 ENERGY PIPELINE JANUARY 2015
The two wells made headlines and launched a drilling frenzy. A small town surrounded by cotton-producing farms in the grip of a devastating drought, Kilgore’s population grew to 10,000 from 700 in just a few days. Like “Dad” Joiner, Malcolm Crim had ignored reports from geologists who claimed the earth below Kilgore and his mother’s nearby farm were barren and worthless, says historian Calib Pirtle III, adding, “the drought-stricken soil grew a few vegetables for families to eat but little else.” Crim was owner-operator of his family’s local general store, “peddling, he once said, everything from candy to coffins,” Pirtle says. As the decade of the 1920s wound down, “his cash drawer was filled with a few coins and greenbacks, but mostly IOUs.” Earlier, a gypsy from West Texas for 50 cents had given Crim a psychic glimpse of the land under his mother’s farm “turning black with oil,” says Pirtle. “She knew a lot about his past. There was no reason for him to doubt that she had a clear view of his future as well,” Pirtle notes. Crim obtained scattered leases, including some on his mother’s farm. The fortunes of Kilgore’s mercantile store owner soon changed forever - as did those of many who lived on the 140,000 acres in five counties above the East Texas oilfield.
Mrs. Lou Della Crim sits on the porch of her house and contemplates the three producing wells in her front yard, notes historian Neal Campbell about this 1930s image of oil discoveries on a Kilgore, Texas, farm.
BRUCE WELLS, is the founder of American Oil and Gas Historical Society, a 501c3 nonprofit organization dedicated to preserving the history of oil and gas. He is a former energy reporter and editor who lives in Washington, D.C.
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1701 1st Ave, Greeley , Colorado 80631 Phone: (970) 353-7299 • 24 Hour: (970) 590-1100 www.cementersinc.com JANUARY 2015 ENERGY PIPELINE 67
According to oil patch historian Neal Campbell, no sooner had the 1930 oil well come in than Crim, with whom everyone in town did business, declared all debts were forgiven. “Crim invited his customers to the store where he tore up their IOU papers into scraps and burned them saying, ‘We’re wiping the slate clean, we’re even with everybody,’ “ says Campbell. “In 1932, Malcolm Crim’s younger brother Liggett owned the Crim, Kilgore’s most popular first-run movie house,” Campbell reports. “He knew what conditions were like for his fellow citizens and he knew immediately how the discovery of oil would change all of their situations for the better,” concludes the historian. Read more U.S. petroleum history at the American Oil & Gas Historical Society website, www.aoghs.org.
Malcolm Crim’s younger brother owned the Crim in 1932, Kilgore’s most popular “first-run movie house.”
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Instruments are conveniently mounted and connected to control panel using rigid conduit. Skids are decked with tread plate and solid welded for maximum rigidity. Environmental pans and catch sumps are available. Skids are designed with deflection ratio at of at least 800:1. Our engineering department uses FEA software to anaylze 68 ENERGYon PIPELINE 2015 stresses everyJANUARY structural base plate.
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JANUARY 2015 ENERGY PIPELINE 69
DATA CENTER
The oil and gas industry is a large part of Colorado’s economy. Below, find statistics on energy pricing, drilling production, well permits, spills and rigs.
2014 DRILLING PERMITS
2014 GAS PRODUCTION
COUNTY *YTD PRODUCTION (% OF STATE) Garfield .............. 383,489,302 (37.7%) La Plata.............. 231,399,630 (22.7%) Weld .................. 190,860,050 (18.8%) Las Animas............. 65,744,003 (6.5%) Rio Blanco ............. 53,851,116 (5.3%) Mesa ...................... 27,373,666 (2.7%) State ........................... 1,015,981,664
Source: Colorado Oil and Gas Conservation Commission as of Dec. 1; figures do not include complete production numbers. Companies have 45 days to report production.
(thousand barrels per day) Region ..............Dec. 2014 ......... Jan. 2015 Bakken.................1,224 .............1,251 Eagle Ford ............1,655 .............1,685 Haynesville ................57 .................. 57 Marcellus ..................54 .................. 55 Niobrara ..................375 ................382 Permian ...............1,824 .............1,870 Utica.........................48 .................. 52 Total.....................5,237 .............5,352 Source: U.S. Energy Information Administration, Dec 8.
70 ENERGY PIPELINE JANUARY 2015
Weld........................................................................................2,056 (54%) Garfield...............................................................................973 (26%) Lincoln.....................................................................124 (3.3%) Rio Blanco...........................................................102 (2.7%) La Plata..........................................................77 (2.0%) Yuma..................................................53 Moffat.................................................53 Adams............................................50 Arapahoe.................................28
2014 OIL
PRODUCTION
Montezuma.....................23
COUNTY *YTD
Cheyenne........................23
Weld ..........39,366,269 (82.2%) Rio Blanco ........2,915,416 (6%) Garfield .........1,247,441 (2.6%) Cheyenne .........972,662 (2.0%) Lincoln .............956,917 (1.9%) Moffat .............275,315 (0.57%) State......................... 47,867,417
Gunnison.................20 Jackson................17 Morgan.............6 Larimer..........4 State ........................................................3,801
(million cubic feet per day) Region ..............Dec. 2014 ......... Jan. 2015 Bakken.................1,506 .............1,537 Eagle Ford ............7,325 .............7,432 Haynesville ...........6,845 .............6,902 Marcellus ...........16,099 ...........16,312 Niobrara ...............4,650 .............4,698 Permian ...............6,015 .............6,099 Utica....................1,668 .............1,754 Total...................44,108 ...........44,734 Source: U.S. Energy Information Administration, Dec. 8.
COLORADO ACTIVE WELL COUNT
NO. (% OF STATE TOTAL)
Mesa.......................................................74
NATIONAL OIL PRODUCTION*
NATIONAL GAS PRODUCTION*
COUNTY
Source: Colorado Oil and Gas Conservation Commission as of Dec. 2.
COLORADO DRILLING RIG COUNT
PRODUCTION (% OF STATE)
Source: Colorado Oil and Gas Conservation Commission as of Dec. 1; figures do not include complete production numbers. Companies have 45 days to report production.
Colorado ................................. 72 Weld ...................................... 49 Garlfield ................................. 10 Source: Colorado Oil and Gas Conservation Commission as of Nov. 25.
Weld..........................................................................21,866 Garfield .....................................................................10,884 Yuma...........................................................................3,905 LaPlata .......................................................................3,336
Las Animas .................................................................3,047 Rio Blanco ..................................................................2,904 36 others ....................................................................6,996 State .........................................................................52,938
Source: Colorado Oil and Gas Conservation Commission as of Dec. 2.
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RENTING
THE SMART WAY TO GET THINGS DONE Interstate Rental and Sales is your source for contractor’s equipment in the oil field industry. We also specialize in the repair of construction & heavy equipment. 24 hour sales & service.
Call INTERSTATE RENTAL & SALES, INC. at 303-485-5600 today for all your commercial & residential equipment needs.
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8127 W. Interstate 25 Frontage Road • Frederick, CO 80516 Rental/Sales (303)485-5600 • Email Address: irs@interstaterental.net Gary Jenson/Sales (970)689-1956 • Alan Fisher/Shop&Service (303)956-0768 ENERGY PIPELINE JANUARY 2015